It turns out that a the retail data came with a big fat *asterisk, which (as happens all too often) presented a very misleading view of the data.

Why? Well, we track these numbers so as to have a good read on the strength of the consumer, and how sustainable their present spending pattens are. Given that the US consumer is 70% of the economy, their actions are quite significant.

That’s what makes today’s asterisks so significant: Much of the volume gains came via one offs, unusual factors, and huge discounting, with retailers sacrificing margin in exchange for volume:

"But chains like Wal-Mart Stores and Macy’s, which led the pack, have
slashed prices and dangled large discounts to lure customers, which
could hurt profits and mask troubles that might spill out during the
crucial holiday season."

For many retailers, the August and September same-store sales period
have a very high correlation with fourth-quarter results. Its a 91%
for department stores, 86% for discounters, and 84% for teen retailers,according to Bear Stearns analyst Christine Augustine.

Indeed, I am going to make a (not-so) bold forecast: This holiday season, starting on Black Friday, we will see big and early discounts. The retailers know this works (for now), and the consumer has been trained to look for them. Hence, the pressure on margins will be significant. This will also be good for low cost overseas manufacturers — China, Viet Nam, Sri Lanka, etc.

What other asterisks are out there for retailers?

* Florida and Texas pushed back the start of their school openings by several weeks this year, inflating the August sales of teenage-oriented retailers (Abercrombie & Fitch, Aeropostale)

* Tax-free shopping days — formerly a single day or week, have been extended through much of August. Abercrombie (ANF) admitted that without the delay of tax-free shopping days in Florida and
Texas, its sales would have risen just 1% rather than 5%.

* The International Council of Shopping Centers (ICSC) noted that August 2007 saw a 2.9% increase — relatively
weak compared with August 2006′s 3.8% sales gains.

* Marketwatch reported that "the hottest August weather in 113 years also sent shoppers buying air conditioners and other hot-weather items as retailers cleared out their summer merchandise in a transition to fall goods, said weather consulting firm Weather Trends International

* Retail slumming is in full effect: Discounters, rather
than full-price chains, reported the strongest performance in August ’07.
At stores open at least one year, sales rose 6.1% at Target (TGT) and 3.1% at Wal-Mart (WMT).

* Gasoline prices below $3 a gallon made consumers feel more comfortable about shopping. However, since then, Oil has ticked back up towards its highs, with gasoline prices sure to follow

* The NYT reported that Wal-Mart said "Consumers flocked to its stores for
bedding, apparel and towels, categories that the chain had struggled
with for much of the year." Why the sudden reversal of fortune? Big discounts.

* Who else was the big winner? Luxury chains. Sales rose 6.6% at Nordstrom and 18.2% at Saks.

But don’t take my word for it: listen to what the retailers execs are saying themselves:

"Interviews with retail chief executives — generally an optimistic, cheerleading bunch — found them expressing serious reservations about the outlook for consumer spending over the next several months. “It will be tougher than it is now,” said Myron E. Ullman, chief executive of J. C. Penney, referring to shoppers’ anxiety about the economy. “I do not see anything on the horizon that will turn this around.”

The chief executive of Staples, Ronald L. Sargent, described himself as “nervous” about the holidays; “maybe cautious is the better word,” he said. “The economic forecast is causing people to delay buying what they can delay buying. They are not running out to get the latest all-in-one H.P. printer.”

That’s a big surprise, as these guys are usually in the the "lemonade from lemons" crowd.

Between the office move and the markets lately, I didn’t get a chance to address the new iPods/iPhone. Let’s do that now.

Back in January,
I noted why I did not think the iPhone would cannibalize the iPod: Apple would migrate the touchscreen downstream to the smaller
and non iPhone "pods." Nine months ago, I noted it was only a matter of time before Apple would bring out a touchscreen (non-phone) iPod.

Well, that came to pass.

As to the rest, I got some of the new products, prices and capacities right. I got some aspects wrong. Back in January, I estimated what Apple’s products and price points might look like.

Here is a comparison with those forecast and the actual products:

>

Product

Pricepoint

Actual Product

Actual Pricepoint

Apple iPhone10/5 GB

$499/439

16 GB

$399

iPod touchscreen*100/60 GB

$379/329

iPod touch16/8 GB

$399/299

iPod "Classic"
80/30 GB

$279/229

iPod Classic
160/80 GB

$349/249

iPod Nano10/5 GB

$199/139

iPod Video Nano8/4 GB

$199/149

Shuffle 1 GB

$59

Shuffle 1 GB

$79

>

First, it turns out that my estimates of 12-18 months was off — it only took nine months. Second, I wildly under-estimated the capacity of the classic iPods. Third, I wildly over-estimated the capacity of all the flash based iPods and iPhones.

But I did get many of the products, names and pricing pretty darned close.

~~~~

>

The WSJ has an interesting history of all the iPods, and Apple’s stock price:click for larger graphic

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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